Stocks & Commodities V. 32:4 (10-13): Position Sizing In The Spot Forex Markets by Karl Montevirgen

Position Sizing In The Spot Forex Markets by Karl Montevirgen

Balancing Opportunity & Risk

Wouldn’t you like to know exactly how much you are risking before you enter a trade? Find out how to do just that before placing your next trade.

Let’s begin with the concept of strategy. A strategy is a set of actions that is organized and combined to achieve a predetermined result. Although various components within a given strategy differ in proportion, sequence, and emphasis, each component, no matter what its limited role or function, has the capacity to have a momentous effect on the outcome. It is possible for a minor strategic component to unexpectedly be-come the single and most critical factor leading an entire strategy to its successful completion; inversely, the same can be said about each component’s vulnerability to risk and failure.

Anyone who has had the experience of developing or implementing a strategy knows that its success relies on its capacity to seize opportunity and to manage risk. The notion that opportunity and risk are two sides of the same coin is a misguided abstraction. In actuality, the size and potential of both terms are dynamic and subject to change in proportion to one another, its manner of change being perpetual and asymmetric. For this reason, a well-designed strategy will not place emphasis on one at the expense of the other. As the smallest of contingencies can yield disproportionate results, a minor misstep can throw an entire strategy off course.